Multiple Energy Options In China

WHEN you are an energy giant such as Shell you can afford to explore multiple avenues in an effort to profit from China’s long-term energy needs.

Thus Shell re-affirmed last week that it plans to invest $1bn in a year in exploiting the country’s vast shale-gas reserves, which are even bigger than those in the US (see above table), even though:

*A lot of the reserves are in mountainous regions, thereby requiring construction of new bridges roads, etc.

*Some of the reserves are in areas short of water, whereas other shale-gas fields are in Sichuan – where there is a big alternative demand for water for rice cultivation. The “fracking” process is water intensive, although engineers argue that this is just a cost issue as water can be treated and recycled.

*Peter Voser, Shell CEO, admitted in June that China’s shale gas reserves are “geologically challenging”. Shale gas fields in China are around 10,000 deep, twice as deep as those in the US, according to Tony Regan of the Singapore-based gas consultancy, Tri-Zen.

But as we discussed in March, China is becoming more open to doing deals with the IOCs which might already have the technologies, or might develop the technologies, to overcome these challenges. Shell revealed, in the same announcement last week, that China is to become its global research hub for unconventional oil and gas technologies.

Shell also disclosed that it is move its global headquarters for coal-bed methane to China. China expects coal-bed methane to meet 15 percent of its energy needs by 2020.

This may not be comparable at all to China, but in Queensland in Australia the coal-bed methane industry has encountered problems as a result of what Regan says has been the “psychology” of assuming that it would be technically easier than shale gas. In reality, it has on occasions proved as technically challenging, leading to disappointing gas production from initial exploration work.

Meanwhile, construction work on the Qatar Petroleum, Sinopec and Shell refinery and petrochemicals complex in Taizhou, Zhejiang province is due to start this year, according to ICIS.

The project, costing an estimated $12.6bn, will make use of imported condensate feedstock and will include a worldscale cracker and a 300,000 bbl/day refinery.

Qatar Petroleum and Shell have what China needs – hydrocarbon reserves – in return for which they get to serve the government’s desire to raise petrochemicals self-sufficiency.

The other prize is the refinery sector, provided price controls on refinery products, such as gasoline and diesel, are eventually lifted. At the moment, as the Sinopec first-half results revealed, refining is a very difficult business in China.